A LEADING CATALYST IN FACILITATING INDONESIA’S INFRASTRUCTURE DEVELOPMENT Private Sector Perspective and Efforts for Green Growth and Sustainable Development Jakarta, 8 April 2014 PT Sarana Multi Infrastruktur (Persero) Joint Crediting Mechanism (JCM) Business Forum
AGENDA PT Sarana Multi Infrastruktur (Persero) (“SMI”) I. II. Low carbon initiatives: Opportunities and Challenges III. Lesson learned in accessing climate funds in Indonesia 2
PT Sarana Multi Infrastruktur (Persero) Our services Who we are 1 We provide Commercial Financing PT Sarana Multi Infrastruktur (Persero) (“SMI”) was established on February 26, 2009 with a purpose to Promoter Senior Term Equity become a catalyst for accelerating infrastructure Funding Loan development in Indonesia Take Out Subordinated Refinancing Financing Loan Ownership : Working Mezzanine Bridge Loan 100% owned by the Government of Indonesia Capital Loan 2 We provide Advisory Services Vision: “A leading catalyst in the acceleration of the National Infrastructure Development Program” Financial & Investment Advisory Services Transaction Advisory Services Mission: Training & Capacity Building 1. To become a strategic partner to the government in 3 promoting and accelerating infrastructure We provide PPP Project development in Indonesia. Preparation Services 2. To establish synergy with third parties, e.g. private Project Development Financing institutions, banking sector, local government, state- owned enterprises, or multilateral organizations in Advisory to Contracting/ Tendering Agencies order to increase the capacity of infrastructure fund Limited Capacity Building 3
What does the Outlook for Low Carbon Projects, especially in the renewable energy? Opportunity factors Growth factors High demand new and renewable energy for Geothermal field exploration and production national power security activities Investment in geothermal exploration and Geothermal production service provider production Geothermal power plant development The second biggest geothermal sourcing Geothermal High demand new and renewable energy for Biomass power electricity production development Biofuel plant national power security Investment in biofuel Biofuel transportation technology Investment in biomass power production Biomass energy source production (e.g. waste facilities processing plant) Petroleum reserves is depleting Biomass and biofuel tools and equipment Bioenergy High demand new and renewable energy for Hydro power plant development national power security Equipment and service in hydro power plant Investment in hydro and micro hydro power Micro hydro power plant is the most popular for hydro plant energy source The biggest power energy source potential in Indonesia Hydropower High demand new and renewable energy for Solar PV equipment (solar cell, battery and power national power security storage) producer and provider Investment in solar energy power source Solar PV equipment service maintenance provider High potential in solar source Solar energy for power electricity investment Solar Energy 6
National energy mix strategy is supported by diversified Renewable Energy sourcing in Indonesia Natural National Energy Mix Natural Gas Coal Gas 24% 33% 30% Oil Target on 2025 2011 47% Coal Oil 24% NRE 20% NRE 17% 5% NRE= New & Renewable Energy Renewable Energy Potential in Indonesia National Electrification Ratio Installed Resource Undeveloped 80,00% Energy Source 77,65% capacity Potential Potential (%) 75,90% Hydropower 4.264 MW 75.760 MW 94 75,00% 73,50% Geothermal 1.052 MW 27.510 MW 96 70,00% Mini-hydropower 86,1 MW 500 MW 83 67,15% 66,28% Biomass 445 MW 49.810 MW 99 65,00% Solar 12,1 MW 4.8 kWh/m 2 /day - Wind 1,1 MW 9.190 MW 99 60,00% 2009 2010 2011 2012 2013E Ocean 0,0 MW 35 MW 100 Source: Ministry of Energy and Mineral Resources Republic of Indonesia Source: PLN & Ministry of Energy and Mineral Resources Republic of Indonesia 7
The energy sector in Indonesia is dominated by four key policies and objectives as the basis of green energy regulatory framework “ The Government of Indonesia “ A key objective of the Government of recognizes that it can no longer Rational Energy Indonesia is to reduce dependence on sustain uniform pricing for electricity Diversification Pricing oil & coal by expanding the use of gas, and petroleum products across the and renewable energy resources ” country, and it has begun to eliminate subsidies. ” “ The combination of decentralization of government decision-making to give greater involvement to regional “ The Government of Indonesia Energy Sector Rural authorities, and the need to attract wants to bring electricity to 90 Reform Electrification capital investment in the energy sector percent of the population by 2020 ” call for energy sector reform that introduces greater transparency to planning and decision-making ” 8
Overall, the key drivers and restraints of the Low Carbon investment in Indonesia High power High demand and low Abundance of new electrification ratio energy and RE Market Drivers potential resources Rational tariff for commercially Indonesian high investment National energy economic and policy (energy mix) industry growth & incentives Low Low Market restraints Need for more expertise Limited information and awareness Investment issue and subsidy scheme Lack of infrastructure Land acquisition High issues and long chain of bureaucracy 10
Case study: Financing Low Carbon Projects Not many banks or other Low • Included in sponsor financial institutions are • Limited equity Low to Medium • Convensional interested in providing • Limited flexibility of financing Medium management financing to small hydro Medium to High projects power High • Proven Off taker* • Certain/Regulated Pricing (<10 Sponsor Operator Bank MW) • Simple procurement • Licensing • Land Low Carbon Projects (Acquisition, Off taker Government or Usage Permission of Forestry) Source of Energy Project Preparation Machine Supplier Contractor Consultant Supply • Lower middle • Small and medium class • Unproven project management • Sustainability issues • Simple technology • Less comprehensive feasibility capabilities • Difficult to access location • Low maintenance study (probability of cost • Lack of ability to handle cost overruns and design changes) overruns case 11
Financing Low Carbon Projects: Sources of Financing Typical Financing Source of Funds Financing Mix Institutions Banks • International Banks e.g. deposits (mostly short term for domestic banks) & • Large Domestic Banks capital market • Local Branch of Foreign Bank Infrastructure Project Investment • Small-to-medium Domestic Banks 70% - 80% e.g. government, private investors ECAs Debt e.g. multilaterals/bilaterals member countries, capital multilaterals/bilaterals market e.g. Government, multilaterals/bilaterals, private Infrastructure Financing Institutions investors & capital market (PT SMI/IIF) Subordinated • Strategic Investors Quasi-Equity Loan • Private Equity / Hedge Funds 20% - Mezzanine • Infrastructure Financing Institutions e.g. private investors, multilaterals/bilaterals, capital 30% market (PT SMI/IIF) Convertibles • Carbon Development Equity Credit or JCM ?? Equity 12
Background: there are many climate/ green funds for emissions reduction projects Under UNFCCC (United Nations Framework Convention on Climate Change) Special Climate Change Fund (SCCF). Least Developed Countries Fund (LDCF) “ The total amount pledged to date is the “ LDCF resources now amount to more than $400 equivalent of USD 253.5 million ” million in grants ” Copenhagen Accord Adaptation Fund (AF), Kyoto Protocol “ to mobilize between U.S. $ 30 for the period “ The Fund is financed with 2% of the Certified 2010 to 2012 and to $ 100 billion annually by Emission Reduction (CERs) issued for projects of 2020 ” the Clean Development Mechanism (CDM) and other sources of funding ” Funding to climate change activities is also available through bilateral, regional and multilateral channels “ African Development Bank (AfDB), WB, Finland, Germany, Norway, Japan (JCM) , United Kingdom, United States of America ” 13
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